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“Multigenerational Wealth Is Best Hidden”: What Doesn’t Donald Trump Want You To Know About His Wealth?

This is what Donald Trump’s refusal to release his tax returns says about America. We are a nation that can’t think straight about wealth and class. And Trump knows better than to puncture our delusions.

The American psyche is hyper-attuned to the trinkets of the wealthy: the right car, the right brand of clothes, the right vacation spots. We flatter ourselves with our circumscribed access to these status goods — or perhaps we only dream of that access — but we fail to understand that they do not equate to real wealth.

The very rich are different from you and me. They have something we never will: the power of money. Their money is the kind that doesn’t go away with a divorce, an extended sickness, a dip in the markets or even the death of a high income earner. Theirs is the kind that owns politicians and the laws they make.

Real wealth, the multigenerational kind, is best hidden. And even though a tax return won’t reveal all there is to know, it will reveal enough.

Trump told the Associated Press this week that nothing would be released until the government is through with its audit of him. The next day, Wednesday, he hedged a smidgeon to Fox News, saying he’d like to release the returns before the election. Don’t bet on that happening.

For one thing, if we were able to see how Trump’s fortune is structured and how much tax he pays on it, we would also be able to compute his liability under his proposed changes to the tax code. In other words, we would be able to approximate how much Trump stands to earn for himself and his heirs by pulling the strings of power. Is it any surprise he won’t go there?

Let’s take a closer look at the tax plan that he unveiled last fall. Plenty of experts have already done so.

As part of his populist appeal, Trump envisions simplifying the tax code and dismissing about 73 million households from paying any tax at all (most of those are already not paying). Those families will be able to submit a form to the IRS that says, “I win.” Yes, that is really his plan.

The cuts would lower taxes for people all income levels. But the Tax Foundation, a nonpartisan but right-leaning watchdog group, noted “the biggest winners — in raw dollars and on a percentage basis — would be those in the top 10 percent of filers, particularly those in the top 1 percent.”

The top marginal rate for individuals would drop from 39.6 percent to 25 percent. The corporate rate would drop from 35 percent to 15 percent. He would do away with the estate tax. That adds up a lot of lost revenue — about $10 trillion over a decade, according to the Tax Foundation

Trump claims that the tax cuts would be made up for by closing some loopholes for the wealthy and corporations. But the Tax Foundation crunched the numbers and has deemed this to be wishful thinking. Severe cuts to spending would be necessary to avoid crushing growth in the national debt.

Wishful thinking is Trump’s stock in trade. Indeed, some speculate that another reason why he does not want the public to see his tax return is that his boasted wealth is squishier than he’d like to admit. Trump is notorious for overstating his attributes, and when it comes to his wealth he is especially touchy.

He sued former New York Times reporter Timothy O’Brien over the latter’s book, “TrumpNation: The Art of Being the Donald,” which questioned Trump’s net worth. The book also explored if Trump convinced his siblings to borrow on his behalf from their trust funds to save him from financial ruin in the early 1990s. Trump’s lawsuit against O’Brien was dismissed.

Still, Trump is clearly rich to an extent most Americans cannot imagine. Oddly — and sadly — many tout this as an alluring quality. He’s so rich he can’t be bought, they say. This attitude reveals a pathetic inability to understand plutocracy, and its growing threat to our democracy. Americans continue to be suckered into unrealistic beliefs about their ability to upgrade their social class. Meanwhile, the policies and programs that are necessary to promote middle-class security are toppling one after another.

Donald Trump is not going to share his wealth with you, dear voter, or help you get rich on your own. He can’t. What worked for Trump will not work for you. His trick was the oldest one in the book: Have a rich daddy. And keep it in the family.

 

By: Mary Sanchez, Opinion-Page Columnist for The Kansas City Star; The National Memo, May 14, 2016

May 15, 2016 Posted by | Donald Trump, Plutocrats, Tax Returns | , , , , , , , , | 1 Comment

“What The Godfather Of Reaganomics Gets Wrong”: Wink, Wink, Nudge, Nudge; More Distorted Reagan Nostalgia

Chris Christie just announced a big tax-cut plan. Well, of course he did. Offering such proposals is de rigueur for Republican presidential candidates. And it pretty much has been since the Reagan presidency.

No surprise, then, that Arthur Laffer, intellectual godfather of the Reagan tax cuts, remains in high demand on the right. Many GOP 2016ers — including Jeb Bush, Scott Walker, and Ted Cruz — have been publicly consulting with the supply-side economist who continues to joyfully preach the wonder-working power of cutting top marginal tax rates.

But Laffer is, shall we say, less than enthusiastic about my recent column here at The Week, in which I argued that some presidential wannabes were misinterpreting and misapplying the lessons of Reaganomics. As I wrote a few weeks back:

Republicans sometimes misuse Reaganomics to justify fantastical tax plans that promise deep rate cuts for the rich — both Cruz and Paul favor low-rate flat taxes — that will pay for themselves and boost the middle class through explosive economic growth. … Republican policymakers and voters have little reason — either from historical experience or empirical studies — to assume tax reform will generate a prolonged period of 4-5 percent GDP growth such that concerns about budget deficits and income distribution are irrelevant. [The Week]

In other words, a flat tax won’t supercharge growth enough to prevent us from losing big bucks. This is a rather modest claim and critique, one perfectly compatible with the idea that the Reagan tax cuts were still good policy. Reaganomics was a home run — just not an impossible five-run dinger.

My comments are also compatible with the consensus among economists on the left and right. Yet Laffer felt compelled to respond to my article with a three-chart, five-page, 2,000-word rebuttal.

Laffer is one of the most important public policy entrepreneurs of the 20th century, right up there with John Maynard Keynes and Milton Friedman. His official bio asserts his work was responsible for “triggering a world-wide tax-cutting movement in the 1980s” — and that is no vain boast. His famous Laffer Curve — an illustration of the trade-off between tax rates and tax revenue derived from the ideas of philosopher Ibn Khaldun — is indeed one of “the main theoretical constructs of supply-side economics.”

So it is disappointing that Laffer, in responding to me, offers such an odd, airy, and ultimately unnecessary defense of his life’s work. For instance: While Laffer doesn’t explicitly say the Reagan tax cuts paid for themselves, he doesn’t say they lost revenue, either. Yet he spends hundreds of words countering my claim that they didn’t pay for themselves. What Laffer basically argues is that since (a) income tax revenue rose during the 1980s, (b) the rich paid a higher share of GDP in income taxes, and (c) there were more employed people as a share of the entire adult population, then that must mean the tax cuts paid for themselves. Except he doesn’t actually say that. “Well, I hope you get the idea” is how he puts it. Wink, wink, nudge, nudge.

Put aside for a moment that Laffer mostly avoids my evidence, such as a Treasury Department study concluding the Reagan tax cuts lost $200 billion a year and one by former Bush II economists that found income tax cuts only recoup a sixth of the revenue they lose through higher growth. A bigger flaw in Laffer’s argument is that he ignores everything else happening in the U.S. economy during the 1980s. Tax rates matter plenty — Laffer’s key insight — but they aren’t all that matters. Laffer ignores the big role of easier monetary policy in driving the recovery after the awful 1981-82 recession. And, yes, the employment-population ratio rose in the 1980s — as it did in the 1970s. Did the Reagan tax cuts cause the Baby Boom, too? Laffer also ignores the revenue impact of $115 billion a year in 1980s tax hikes and how the Tax Reform Act of 1986 nudged rich people to shift how they took their income to the personal income tax base from the corporate one. Laffer ignores a lot as he attempts to make a stronger-than-necessary case. The economist doth protest too much.

Laffer’s other big objection is that I downplay the growth effects of the Reagan tax cuts by cherry picking dates. Since the tax cuts did not go fully into effect until 1983, Laffer argues that’s the appropriate start date for the Reagan boom. Indeed, real GDP grew at a snappy 4.5 percent annually from 1983 through 1988. But Laffer’s timing is problematic. The recovery likely would not have been as strong if not for the 1981-82 recession itself. Sharp recoveries after downturns were the rule of the postwar era through the 1980s. And since the 1981 downturn was the deepest, a strong rebound would be expected. For example, the economy grew by 5 percent during the first two years after the awful 1973-75 recession.

Again, none of this means the Reagan tax cuts failed. It would be hard to find a reasonable economist who denied they boosted growth in the 1980s as the Fed battled inflation. The effects just were not ginormous enough to fully offset the direct revenue loss. More importantly, perhaps, Reaganomics — tax cuts, deregulation, entrepreneurial optimism — changed America’s longer-term economic direction. Economist Michael Mandel contends that “the impact of the policies Reagan set out in the 1980s, which slowly worked their way through the economy, helped lay the groundwork for the Information Revolution of the 1990s.” So, yeah, you can give Reagan a bit of thanks for your smartphone.

This is the data-driven, evidence-based analysis Laffer and other old-school Reaganauts should be making to today’s GOP and center-right movement. The real Reaganomics. With fantasy tax plans again abounding on the right, the presidential race could use a reality check more than more distorted Reagan nostalgia.

 

By: James Pethokoukis, The Week, May 13, 2015

May 14, 2015 Posted by | GOP Presidential Candidates, Reaganomics, Supply Side Economics | , , , , , , , | 1 Comment

“Keeping Their Eyes On The Prize”: Democrats’ No. 1 Job; Remind Voters That American Wages Have Flatlined

For the moment, the Democrats have resumed their time-honored posture of arguing about trade policy. It’s an important issue, and one on which I’m not sure where I come down. But as they prepare to rip each other’s flesh, they might bear in mind it isn’t the issue. The issue, as I wrote two weeks ago in urging Hillary Clinton to go big, is wage stagnation. I offer this up as a timely public-service reminder: Remember, folks, what you agree on.

As I noted in the go big column, wages have been in essence flat for earners—up 6 percent (adjusted for inflation)—in the middle of the income scale since 1979. For the top 1 percent, compensation has risen about 140 percent since the fateful year. This needs to be the issue of this campaign. If American voters don’t know these 6 percent and 140 percent figures November 8 next year, Hillary Clinton and the Democrats will have done something very wrong.

Economists choose 1979 as the cutoff year because, looking back over the numbers, that’s when the flattening started. It’s also about when compensation at the top started soaring (a little later, actually). Until the early to mid-1980s, Wall Streeters and corporate lawyers and actors and university presidents and star athletes made more than the rest of us, but they didn’t make gobs more.

For example, the average baseball salary doubled, up to around $370,000, from 1981 to 1985. The average wage in that same time frame went from $13,773 in 1981 to $16,822 in 1985, an 18 percent increase. Not bad, better than average; but not double by a long shot. I’m not saying the juxtaposition of these numbers proves anything more than it proves. But it is certainly representative of what was happening to American wages then and has been happening since.

Another way of looking at it: The average ballplayer went from making about 12 times the average American to 22 times. Today, incidentally, it’s 108 times, $4.25 million to around $39,000.

So what we’re gonna do right here is go back, way back, as an old song had it, to the year of Apocalypse Now and Get the Knack and those hideous Pittsburgh Pirates uniforms  that so offended my aesthetic sensibilities that I had no choice but to cheer against the team I’d grown up worshipping. Let’s ask: What if the wage structure in the United States today were the same as it was in 1979?

Larry Summers asked the question in the Financial Times back in January. The bottom 80 percent of earners, he wrote, would have $11,000 more per family, and the top 1 percent would have $750,000 less. In the wake of Summers’s column, the folks at NPR’s Planet Money took it one step further and calculated the increased (or decreased) income for households at several points along the wage structure. It’ll pop your little eyes.

The poorest wage-earners, at $12,000, would be making $3,282 more. That’s a 27 percent increase. Those at $30,000 would be making $6,928 more (23 percent). Those at $52,000 would be getting $8,752 more (16.8 percent). For those at $84,000, the increase drops off, to $5,834 more (7 percent). But it kicks back up for those at $122,000, to $17,311 (14.2 percent). And finally, those in the top 1 percent, at $1.41 million, would see a decrease in earnings of $824,844, or a whopping 58 percent.

Now before we go any further—no, no one today is talking about anything as confiscatory as wiping out 58 percent of the top 1 percent’s earnings. That isn’t how it’s going to work anymore, with top marginal tax rates of 76 percent (which does not mean that the government took three-quarters of someone’s money; go look up the concept of “marginal” if you don’t get this).

But the wage structure is a function of a whole host of other policies and practices that have nothing to do with marginal tax rates. It has to do, yes, with the minimum wage. It was $2.90 in 1979. Adjusted for inflation, that would be $9.38 today instead of the actual $7.25, which is a 23 percent decline for those workers, and minimum wage is generally thought to have knock-on effects at least a third of the way up the wage chain. It has a lot to do with corporate culture: In 1979, CEOs at the top few hundred corporations made about 28 times the average worker’s salary; now they make more than 200 times. There were 15.1 million private-sector union workers  in the United States in 1979; last year, there were 7.35 million. And in 1979, Washington oversaw a lot more in public investment than it does today, and those dollars by and large went into real things, from bridges to scientific research, instead of swaps and derivatives.

Now, 1979 was a bad year in some important ways—inflation, hostage crisis—so I’m not saying I think it would be the world’s greatest idea for the Democrats to campaign on bringing back 1979. It’s not about the year per se. That just happens to be the year the thing started happening. And the thing is flat wages for most people who work for a living.

The trade fight has to be played out, and it seems that the unions and the Warren wing are probably going to lose, because the president will get enough votes from Republicans and moderate Democrats. And of course it’ll be interesting to see how Clinton plays it. Whichever position she takes, we can be sure she’ll do it cautiously.

So dust will be kicked up over that. It has to be. The differences are real. But comparatively, the differences are small. Democrats must keep their eyes on the prize. “Who cares more about increasing the wages of working Americans?” is a debate question the Republicans can never win. The Democrats have to make sure the election is about that question.

 

By: Michael Tomasky, The Daily Beast, April 24, 2015

April 29, 2015 Posted by | Democrats, Minimum Wage, Wage Stagnation | , , , , , , , | Leave a comment

“Misrepresenting The Facts”: Obamacare Critics Still Tell Just One Side Of The Jobs Story

The economics profession is famous for its balance—as the joke goes, we always need more hands to express all the caveats to our conclusions. (“On the other hand … and on the other hand … and on the other hand…”) That is why arguments about last week’s report from the Congressional Budget Office have become so frustrating, even when accomplished scholars are the ones doing the arguing. Instead of addressing a subtle and complicated issue with (at least!) two sides, the law’s critics keep turning it into a single-sided moral diatribe about the work ethic and the supposed damage Obamacare is doing to it. A perfect illustration is a recent New York Times Economix column by Casey Mulligan, a University of Chicago economist whose own research has become part of the debate — and who, in the course of dismissing the Affordable Care Act’s virtues, took a swipe at me, as well.

The genesis of Mulligan’s article is the surprisingly famous appendix to that CBO report—the part where the agency predicts that the Affordable Care Act will be associated with a reduction in the workforce of the U.S. The bottom line of that report is that the ACA will result in 2 million fewer jobs by 2017.  And, as is typical of the generally excellent CBO studies, this report is careful in describing the genesis of this conclusion.  The CBO highlights that there are essentially two different sources of the reduced labor supply. The first is voluntary job leaving by those who have been “locked” into their jobs by fear of losing health insurance.  Some of these individuals would happily turn down their wage to be retired or caring for children, but were previously unable to do so because they had no other insurance options; now they are able to pursue those preferred approaches.  The second is those who are deterred from working by higher marginal tax rates.  In particular, since the Affordable Care Act’s financial assistance phases out as income rises, the incentive to work more also declines at higher incomes. In other words, the law’s financial assistance is an implicit tax on earnings—and the tax gets higher as people earn more.

Mulligan’s article, and a number of his recent papers, are focused on the effects of these tax rates.  He performs detailed computations which show that, for some individuals, that the tax rates can be quite high. In his recent post, Mulligan implies that these high tax rates are the reason for the CBO conclusions on reduced labor market participation. He dismisses the job lock effects as “a completely different issue…and far less prevalent.” He even cites the sentence on page 119-120 which ends with a footnote citing his work as evidence that CBO’s report is focused on high tax rates.

But Mulligan doesn’t mention that, in the very next paragraph, CBO dismisses his argument. According to the report, his suggested effect doesn’t impact labor supply, but rather health insurance offering (which they model elsewhere). Mulligan claims that CBO was “aware of instances of 100% tax rates,” which may be true, but the entire Appendix doesn’t mention this fact even once. It is not surprising that, unlike Mulligan, CBO economists did not harp on examples of 100% tax rates. They are uninterested in calculations that highlight extreme cases. They are more interested in modeling the overall impact on the workforce. Showing that tax rates might be high for a small number of workers is not as important as assessing what happens to aggregate labor supply.

More important, though, is Mulligan’s casual dismissal of the other reason why the labor market is shrinking, which was highlighted by a broad array of analysts. The CBO explicitly states that at least some of the labor supply reduction that they measure is from loosening “job lock,” and they never say anything which would lead the reader to conclude that job lock concerns are “far less prevalent” as an issue. That is simply Mulligan’s editorializing with no substantive basis.

Moreover, the CBO also includes a lengthy discussion of the potential positive productivity effects of loosening job lock.  Since the CBO is cautious, and there is no consensus evidence on the productivity effects of job lock, they do not provide any estimates of the countervailing benefits of loosening job lock in their labor supply modeling.  But at least they don’t ignore the topic, as Mulligan’s article would lead you to believe.

Mulligan says that the Obama administration “spun the high marginal tax rates as a policy achievement,” when, in fact, the post he cites is about job lock—not implicit marginal tax rates. Mulligan then goes on to misuse a quote of mine (as well as of Paul Krugman’s) that implies that we applaud the reduction in labor supply due to high marginal tax rates.  Nothing could be further from the truth.  My quote came from a Los Angeles Times opinion column. In it, I laid out clearly both of the effects documented by the CBO.  Since this was, after all, an opinion piece, I also offered my view that—on balance—the CBO report was positive, because the benefits of the first labor supply effect (ending job lock) would be larger than the costs of the second (the implicit marginal rates).  But I don’t claim that I know for sure that this is the case.  Krugman’s quote came as part of a series of posts he wrote, describing the economics case for allowing those who are better off not working to leave their jobs rather than to continue to work just to get health insurance. Krugman also gave a more balanced view, acknowledging the downside of implicit marginal tax rates but arguing that, in the end, the upsides were greater.

Mulligan—like so many of the law’s critics, in and out of the economics profession—gives a more one-sided view. He talks only about the marginal tax rates. A reader who relied exclusively on his column would have no idea the CBO cited multiple reasons for the shrinking workforce—and that some of these reasons were utterly defensible.  Ironically, while making a surprisingly moral case against examples of 100% tax rates, he ignores the moral case for leveling the playing field by breaking the link between work and insurance, so that workers are not chained to jobs where the value of their compensation is well below their disutility of working.

The Affordable Care Act, like any major reform, has its virtues and its flaws. The best economists, like the best public officials, are the ones who deal with both.

 

By: Jonathan Gruber, The New Republic, February 13, 2014

February 17, 2014 Posted by | Affordable Care Act, Obamacare | , , , , , , | Leave a comment

   

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